For Japan's Would-Be Reformer, Little Traction
By Ken Belson
The New York Times
December 26, 2001TOKYO, Dec. 25 - Supporters of Prime Minister Junichiro Koizumi of Japan like to compare him to Ronald Reagan or Margaret Thatcher. They see in him the same kind of gale-force crusader who pushes the country out of the political and economic mire and gets it moving again.
Judging by the way Mr. Koizumi's promise is being translated into policy on the ground, though, a more apt analogy might be with Mikhail Gorbachev, who said all the right things but could never seem to get the dinosaurs of his own party to do them.
Like those three headline-makers of the 1980's, Mr. Koizumi trumpets his willingness to tear down the old order to build a healthier economy. And, like them, he is blunt about whom he holds responsible for past stagnation: hidebound bureaucrats, central bankers, ruling-party elders and other keepers of the status quo.
Mr. Koizumi's promises of a Japanese economic perestroika carried him to power on a wave of enthusiasm from voters hungry for a fresh approach. His extraordinarily high approval rating - 78 percent in a recent Nihon Keizai Shimbun poll - has barely budged even as the country has slipped into a deepening recession, unemployment has risen to record heights and the nation's banks have lost ground in their struggle to stay solvent.
But Mr. Reagan and Mrs. Thatcher were fired by a deep ideological belief in shrinking government, and they had the solid backing of parties that were willing to brave the wrath of liberal voters. Mr. Koizumi has yet to define a grand vision for the economy beyond the immediate crisis.
"People try comparing Koizumi to Thatcher," said Akio Yoshino, head of investment research at SG Yamaichi Asset Management, "but they miss her commitment to deregulation; when they compare Koizumi with Reagan, they leave out the issue of taxes. Koizumi says structural changes are on the way, but unless they include tax and deregulatory reform, people won't believe there is a chance for real change."
Mr. Koizumi is perched atop a political party that is suspicious of him and of any change in a system that has given it a near-monopoly of power for decades. Many business leaders support Mr. Koizumi as a big improvement over his predecessors, but many also doubt that he can beat the forces arrayed against him.
"In one view," said Robert A. Feldman, chief economist at Morgan Stanley in Tokyo, "the Koizumi government, despite its best intentions, will be sandbagged by vested interests and anti-reform forces in Koizumi's own Liberal Democratic Party. Thus, Koizumi would end up as Japan's Gorbachev, a sincere reformer defeated by the forces that created him."
So far, the banking crisis and the slumping economy have preoccupied Mr. Koizumi, but political opposition has kept him from following through on his bold promises. Next year's budget, which was approved on Monday, cuts outlays by 2.3 percent, but economists expect that the prime minister will face heavy pressure to assemble extra spending packages next year as the recession deepens.
At the same time, Mr. Koizumi has devoted little time to pushing for new ideas in tax and regulatory policy. When the Government Tax Commission, which reports directly to the prime minister, published its annual list of proposals on Dec. 14, they hardly varied from Liberal Democratic orthodoxy.
The committee wants to introduce consolidated tax accounting next year, reduce the capital gains tax on stock sales and make it easier for companies to expand stock option programs. But most of its other ideas for tax cuts intended to stimulate the economy were fought off by the Finance Ministry, which worries about the nation's exploding fiscal deficit.
By the same token, special interest groups have managed to kill nearly every plan for increasing other kinds of taxes to cover an expected shortfall. Even popular ideas - like assessing an extra 40 yen (31 cents) of tax on each pack of cigarettes, yielding 200 billion yen ($1.5 billion) a year - have been shot down.
"Discussions in our committee always break down into arguments," said Hiromitsu Ishi, the dean of Hitotsubashi University and the chairman of the tax commission. Mr. Koizumi has never broken the deadlock between deficit-averse ministry officials and tax-averse politicians.
The Council for Regulatory Reform, a panel set up by Mr. Koizumi in April, has been just as ineffective. Its three-year blueprint for deregulating 15 areas of the economy, published Dec. 12, sketches out ideas like allowing banks to sell exchange-traded mutual fund shares, a popular investment vehicle in the United States, and easing the way for public companies to apply economies of scale to farming.
But no specifics were offered, and no concrete steps to execute the proposals were outlined. Such details were left to be worked out by bureaucrats and lawmakers - two groups with a strong stake in preserving the status quo. The result is gridlock.
"Every government ministry and agency is fighting regulatory reform tooth and nail, including the ministers themselves," Yoshihiko Miyauchi, the chairman of the council, was quoted as saying by The Asahi Shimbum. "We have the prime minister saying `black' and his ministers and their deputies saying 'white.' "